Budget 2008: Chancellor increases VED differentials, scraps biofuels duty benefit
Wed 12 March 2008
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The Chancellor has announced a phased increase in Vehicle Excise Duty, rising to £950 in the first year for the highest carbon cars purchased in 2010. Alistair Darling's first Budget also announces an increase in the number of VED bands, from 7 to 13. Other measures include the removal of the duty differential in favour of biofuels and a delay in the planned petrol/diesel duty increase.
Mr Darling has increased the VED - 'car tax' - differential between the highest and lowest CO2-banded cars from £300 in 2007-8 to £400 in 2008-9. In 2009-10 the maximum differential will increase to £440 and in 2010-11 to £455, for cars purchased in prior years. However, for new cars purchased in 2010-11, the first year's rate of VED will be £950 for cars emitting over 255g/km CO2, adding nearly £500 to the vehicle's standard rate of VED. The lowest-banded cars will pay no VED.
The Chancellor announced the introduction of 6 new VED bands: the A-to-G banding will be replaced by A-to-M. The highest new CO2 band - M -is for vehicles exceeding 255g/km CO2. The previous highest band - G - was for cars over 226 g/km.
Responding to the King Review findings, which were published alongside the Budget, the Government announced that the Department for Transport will actively explore ideas to improve consumer information to better inform car purchasing choices and encourage smarter or eco-driving through the auspices of the Low Carbon Vehicle Partnership.
In terms of consumer information, the King Review specifically recommended that the Government considers the introduction of colour-coded car tax discs; looks to strength advertising regulation to provide clearer information on vehicles; redesigns and makes compulsory the current new car fuel economy label; and considers whether dashboard technology can encourage smarter driving.
On biofuels, Mr Darling announced that the duty differential for renewable fuels will cease in 2010-11. He said that the Renewable Transport Fuel Obligation will from then provide the total support for biofuels.
The duty differential in favour of liquefied petroleum gas (LPG) will be reduced by a penny per litre in each of the next three years while that in favour of compressed natural gas (CNG) will be maintained until 2010-11.
Meanwhile, the planned increase in the main road fuel duty rates of 2p/litre which had been due to take place on 1 April 2008, is to be deferred until 1 October 2008 in view of the rapid recent rise in crude oil and product prices.
The Chancellor has also announced changes to the tax regime in terms of the capital allowance treatment of business cars which will increase incentives for businesses to purchase lower carbon cars.
Mr Darling also announced the Government's support for the King Review recommendation that the European Union should tighten the regulatory cap on car emissions to 100 grams per kilometre of carbon dioxide by 2020.
This represents an apparent strengthening of the UK Government's position. The Environment Secretary, Hilary Benn, had proposed a target of 100g/km CO2 by between 2020 and 2025 during a recent meeting of EU environment ministers.
Friends of the Earth (FoE) responded critically to the Chancellor's Budget claiming it fell a long way short of what is required to develop a low carbon economy. FoE Director, Tony Juniper, said "Another freeze in fuel duty will further undermine the Government's already weak green credentials. The cost of motoring has fallen over the past 10 years, and carbon emissions from road transport have risen. Raising fuel duty would encourage people to choose greener transport options."
Meanwhile, the chief executive of the motor industry's trade body, the Society of Motor Manufacturers and Traders (SMMT), Paul Everitt, said “Encouraging even more buyers to choose models with class-leading emissions should be the priority. We are therefore pleased to see an increase in the number of bands to 13 from 2009. However, introducing what is effectively a sales tax for many new cars is a retrograde step. Trying to force people out of high-value cars has no environmental merit and will be seen as a smokescreen for revenue-raising.”
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